In Uncertain Times, a Publisher Pushes Digital Transformation
Educational content conference shows industry challenges
For one night in fall 2010, Key Curriculum Press, a niche educational publishing company, turned its California office into a museum of its own struggles to show its employees how to save the business.
Rooms in the office were transformed to give employees different experiences based on the status of the company, which had reached a turning point. In one room, employees talked to high school students about changing studying habits as music blared and magazines were laid around to represent distractions. Another room was completely dark and filled with mist to illustrate that the company had ignored economic and educational trends.
Key's sobering realization that things were quickly changing in a long-unchanged industry was one shared last week in Washington by many attending the Content in Context conference, an annual meeting of educational publishers. Publishers large and small were joined by technologists and entrepreneurs; conversation focused on iPads, the threat of free digital content, and globalization as much as it did curriculum. Key was among several companies asked to tell stories of transformation in the digital age.
Facing the 'Big Three'
During Key's reality check back in 2010, another room at the Emeryville, Calif., company's office was filled with battlefield imagery, military music, and a large map of the United States with toy soldiers. Fifteen of the soldiers represented Key's textbook business, which included math and science texts. The "Big Three" publishers that make up 85 percent of the K-12 textbook business—Pearson, McGraw-Hill, and Houghton Mifflin Harcourt—were represented by 400 soldiers each.
"It immediately visualized our market position versus their market position," Milan Wielinga, chief financial officer for Key, recalled in a panel discussion at the conference in Washington. "It put things in perspective."
Sales of K-12 teaching and learning materials is still a $5.5 billion business, but that number dropped 6 percent, as digital revenue increased 45 percent, between 2008 and 2010, according to the Association of American Publishers.
"There's more change going on in this industry in the past two to three years than in the past two to three decades," said Jay Diskey, the executive director of the AAP's school division, which sponsored the conference along with the Association of Educational Publishers.
At the time of its reality check, the average cost for Key to create one of its textbook packages had grown to exceed the average revenue from those product lines. School budgets were dwindling, digital content was becoming more popular, and sales efforts were outmatched by industry giants. So, after 25 years as primarily a print publisher, Key decided to get out of the print-textbook business.
Key was founded in 1971 by two brothers and former teachers, Peter and Steven Rasmussen, and published math textbooks for most of its first two decades. The company dived into technology in 1991, when it developed math visualization software called the Geometer's Sketchpad, and soon after developed print textbooks that incorporated graphing calculators.
In 1996, Springer Publishing, a leading creator of science content based in New York City, purchased a majority stake in the company; Steven Rasmussen stayed on as president of the company.
Key continued to develop technology, including data-analysis software for students, but its development remained a lower priority than the company's publishing arm, said Karen Coe, Key's chief executive officer and an employee of the company since 1996.
"All of our energy had gone into selling textbook programs," Ms. Coe said in an interview last week.
In 2008, as the recession took its toll on school budgets, Key began to hear calls from schools canceling their textbook orders, Ms. Coe said. With technology disrupting other content industries, Ms. Coe believed the changes to the textbook industry transcended funding levels.
"We knew we had to do something more fundamental than just hang in," Ms. Coe said.
When Key held its "Night at the Museum," as Ms. Coe described it at the publishing conference, the company was operating at a loss. But by this time, adoption of the Geometer's Sketchpad had grown to about half of U.S. high schools, Ms. Coe said.
Identifying the successful but overlooked technology products as its main assets, Key "dismantled" its sales operations. No longer would it cater to the lengthy and rigid textbook-procurement process, spending marketing dollars on field representatives, conferences, and advertising, Mr. Wielinga said. Instead, it used demand-generation software, which automates marketing and sales campaigns, and focused on selling technology licenses to other publishers, schools, and teachers.
To complete this reorganization, the company reduced staff, eventually cutting two-thirds by the summer of 2011. That summer, Key sold off most of its textbook programs to three other publishers, even though those programs represented the majority of its revenue.
In addition to the staff reductions, Key had to make other difficult decisions. Springer, wanting a more uniform corporate structure, bought out the remaining stake of the company from Steven Rasmussen, a popular figure within math curriculum, whom Ms. Coe had worked with for 15 years.
"We recognized in order to establish change you also had to change the governance around it," said Mr. Wielinga, who, as part of the change, moved from Springer to Key full time to be its chief financial officer.
(Mr. Rasmussen continues to advise the company and runs a separate, but Key-affiliated, research and development group that works on Geometer's Sketchpad, Ms. Coe said.)
The majority of Key's revenue now comes from technology licensing. A version of Geometer's Sketchpad is being developed for the iPad, and its other technology tools are being developed into Web applications.
Key is a privately held company, so financial data are not publicly available, but Ms. Coe and Mr. Wielinga said the company is no longer operating at a loss. It is aided, its executives say, by its small size, corporate backing, and fortunate early focus on technology, but also by a willingness to see the writing on the wall.
"You have to start anew with your best employees and strongest assets," Mr. Wielinga told the publishers' conference.
Shifts in the Market
Key is but one case study of the shifts in educational publishing. The speed of the technological and financial changes to the industry has produced different outcomes and solutions among publishers large and small.
About one-third of Pearson's business is now from digital products and services, though overall sales have slowed. Houghton Mifflin Harcourt is restructuring as part of a voluntary Chapter 11 bankruptcy process prompted in part by decreasing school budgets. Revenues for the K-12 group of McGraw-Hill's education division, which it plans on spinning off into a separate company, dropped 10 percent year-to-year in the first quarter of 2012.
Even for companies steeped in technology, advances in the field have caused sudden shifts. BrainPOP, an online content and gaming company for children, has been Web-based for 13 years but now must develop its product for various platforms and operating systems, some of which won't last very long, said Din Heiman, BrainPOP's chief operating officer.
"We have to evolve for class room environments that are much more complex," he said in an interview last week.
Some in the industry think the ultimate casualty of all the tightening and shifting is content quality.
Annie Keeghan, a veteran curriculum writer and developer, said technology companies with established distribution channels don't understand pedagogy or standards, while many traditional publishers have pushed out experienced content creators like herself in favor of cheaper options.
"You can't make money off of it, and you can't find anyone who cares about quality and standards," said Ms. Keeghan, now the president of an education consulting group.
At the Content in Context publishers' conference, held June 3-6, many participants tried to predict the future, focusing on how and through which mediums students will learn more effectively. Perhaps the industry itself is unsure whether its interests are more firmly in technology or content.
"The lines are blurring, and they will continue to blur," Mr. Diskey, of the AAP, said. "But it's really up to individual publishers to figure it out."
Vol. 31, Issue 35, Page 9